Lesson: Consumption Choices

Introduction 

Introduction 

Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that we can analyze individuals’ decisions, such as what goods and services to buy, as choices we make within certain budget constraints. Generally, consumers are trying to get the most for their limited budgets. In economic terms, they are trying to maximize total utility, or satisfaction, given their budget constraint. An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. However, economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live.


As you complete this lesson, consider the essential question. By the end of the lesson, you should be able to provide a detailed explanation to this question.

How does consumer choice impact the economy?


By the end of this lesson, you will be able to: 

  • calculate total utility
  • propose decisions that maximize utility
  • explain marginal utility and the significance of diminishing marginal utility

As you complete this lesson, look for the key terms. Add each term to your Vocabulary Chart. You may use context clues or the Glossary to help you define each term. Then, write or draw an example to help you remember what each term means.

  • budget constraint (budget line)
  • total utility
  • diminishing marginal utility
  • marginal utility per dollar
  • consumer equilibrium